Minimum Support Price
What is MSP, exactly?
- The price at which the government purchases wheat from farmers is known as the minimum support price (MSP). For 23 crops grown in both the Kharif and Rabi seasons, MSPs have been established.
What approach is taken in its calculation:
- The MSP, which is determined at least one and a half times the producers’ cost of production, is the rate at which the government purchases crops from farmers.
- According to the Union Budget for 2018–19, MSP would be kept at 1.5 times the cost of production.
- The Commission for Agricultural Costs and Prices (CACP), a statutory organisation that submits separate reports for the kharif and rabi seasons, makes recommendations that are used to determine the MSP twice a year.
Which production costs are taken into account for calculating MSPs:
- The CACP takes into account both “A2+FL” and “C2” expenditures when suggesting MSP.
- A2 expenditures cover all of the money farmers spend on things like seeds, pesticides, fertilisers, hired labour, gasoline, and irrigation.
- Actual out-of-pocket costs and the value of uncompensated family labour are taken into account by A2+FL.
- The C2 expenditures include the rent and interest given up on owned land and fixed capital assets, in addition to A2+FL.
Cons of MSP include:
- For all crops, with the exception of wheat and rice, which the Food Corporation of India actively purchases under the PDS, the fundamental problem with the MSP is a shortage of government procurement equipment.
- Farmers in regions where the government purchases all of their grain reap the most benefits, while those in areas where government purchases of grain are less frequent are regularly impacted.
- The MSP-based procurement system also depends on middlemen, commission agents, and APMC representatives, all of whom are challenging for smaller farmers to contact.